Credit Ratings and Risk with Correlation Structure


Project leader


Funding source

Marianne och Marcus Wallenbergs stiftelse


Project Details

Start date: 01/01/2016
End date: 31/12/2019
Funding: 5015000 SEK


Description

Credit rating systems play a crucial role in the financial system. They help reduce information asymmetry, and improve market function and efficiency. Existing credit rating systems are dominated by alphabetic ratings, which lacks nature mechanism to incorporate credit risk correlation and can hardly aggregate credit risk assessments reflecting up-to-date information. For comprehensive portfolio credit risk management, financial institutions have to resort to internal model development, which is obscure and lacks scientific standard. In our increasingly complex economy, without addressing these issues, the credit rating systems can hardly fulfill the crucial role expected by the financial society. The aim of this project is to develop a new credit rating system that aims to address the drawbacks facing the current rating systems. In particular, the new credit rating system will produce credit risk assessments in terms of continuous and numeric values for individual firms, and also incorporate credit risk correlations for portfolio credit risk management. This new technology builds upon extensive literature on the credit risk, and employs a cutting-edge methodology. This project will also combine state-of-the-art information techniques to handle big data technology used in the model implementation. The outputs of the project will not only contribute to the theory from an academic perspective, but also benefit the financial system from a practical point of view.


Last updated on 2017-12-09 at 11:44